Question

Net Zero Products, a wholesaler of sustainable raw materials. Prepared the following aging of receivables analysis.

				Days Past Due
	Total			0			1 to 30				31 to 60				61 to 90				Over 90
Accounts receivable	$	171,000		$	96,000			$	34,000			$	15,000			$	12,000			$	14,000
Percent uncollectible					1	%			4	%			6	%			9	%			12	%

1. Estimate the balance of the Allowance for Doubtful Accounts using the aging of accounts receivable method.
2. Prepare the adjusting entry to record bad debts expense assuming the unadjusted balance in the Allowance for Doubtful Accounts is a $2,600 credit.

Answer 1

Age category	Amount	Probability of Non collection	Uncollectible amount
01-30 days	$96000	1%	960
31-60 days	$34000	4%	1360
61-90 days	$15000	6%	900
90 above	$12000	9%	1080
	$14000	12%	1680
Total	171000		$5980

There for the balance of allowance for doubtful accounts =$5980

here we have a credit balance of $2600 in the allowance for doubtful accounts. So, we need to adjust an additional credit amount of $3380 to the Allowance for doubtful debts account. The adjusting entry will be as follows:-

Debit Credit

By Bad Debts Expense account Dr. $ 3380

To Allowance for Doubtful Accounts Cr. $ 3380